IN RE STOCK EXCHANGES OPTIONS TRADING ANTITRUST LITIGATION

The opinion of the court was delivered by: RICHARD CASEY, District Judge

MEMORANDUM & ORDER

Plaintiffs brought these consolidated putative class actions
against five national stock exchanges and other defendants
alleging violations of the antitrust laws regarding the listing
and trading of equity options. Plaintiffs have submitted three
settlement agreements for the Court's preliminary approval
pursuant to Federal Rule of Civil Procedure 23(e). Some of the
defendants have raised objections to such approval. For the
following reasons, Plaintiffs' motion for preliminary approval of
the settlement agreements is DENIED IN PART and GRANTED IN
PART.

Plaintiffs, a putative class of equity-options purchasers,
brought more than twenty class actions in district courts
throughout the country alleging that the defendants conspired to
confine the listing and trading of certain options to only one
stock exchange at a time, in violation of section 1 of the
Sherman Antitrust Act, 15 U.S.C. § 1. Defendants in these suits
originally were a group of stock exchanges  the American Stock Exchange ("AMEX"); the
Chicago Board Options Exchange, Inc. ("CBOE"); the New York Stock
Exchange ("NYSE"); the Pacific Stock Exchange, Inc. ("PCX"); and
the Philadelphia Stock Exchange, Inc. ("PHLX")  and a group of
twenty-eight market makers and options-trading specialists
("Market-Maker Defendants"). The Judicial Panel on Multidistrict
Litigation transferred all the actions to this Court for
consolidated pretrial proceedings, and Plaintiffs filed a
consolidated complaint.

In January 2000, Defendants moved to dismiss the consolidated
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6),
arguing that Congress had impliedly repealed the antitrust laws
with respect to the listing and trading of options by giving the
Securities and Exchange Commission the power to regulate the area
in the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
The Court converted the motions to motions for summary judgment
and so notified the parties, providing time for additional
briefing. While the motions were pending, Plaintiffs entered into
three separate settlement agreements with PCX, PHLX, and a group
of defendants including AMEX, CBOE, and eighteen of the
Market-Maker Defendants, which were submitted for the Court's
approval pursuant to Federal Rule of Civil Procedure 23(e). The
Court deferred ruling on the motions for preliminary approval of
the three settlement agreements until after it had ruled on the
converted motions for summary judgment. On February 14, 2001, the
Court granted the motions for summary judgment on the ground of
implied repeal of the antitrust laws. See In re Stock Exchs.
Options Trading Antitrust Litig., MDL No. 1283, M-21-79 (RCC),
99 Civ. 962 (RCC), 2001 WL 128325 (S.D.N.Y. Feb. 15, 2001). The
Court then entered a final judgment dismissing the consolidated
complaint.

In March 2001, Plaintiffs moved pursuant to Federal Rule of
Civil Procedure 59(e), to amend the judgment so that it would not apply to those defendants that
had entered into settlement agreements prior to the Court
granting summary judgment, and moved for preliminary approval of
the settlements. In a decision dated April 24, 2001, the Court
denied the motion to amend the judgment and denied preliminary
approval of the settlements, concluding that it lacked subject
matter jurisdiction to approve the settlement agreements because,
when the Court granted summary judgment in the defendants' favor,
"there was no longer any cause of action over which the Court
could exercise jurisdiction." In re Stock Exchs. Options Trading
Antitrust Litig., 171 F. Supp. 2d 174, 178 (S.D.N.Y. 2001). The
Court stated, "[P]laintiffs' motions for preliminary approval of
their settlement agreements and to alter or amend the Court's
judgment . . . are hereby denied." Id. at 179.

Plaintiffs appealed the Court's summary-judgment decision and
its decision that it lacked subject matter jurisdiction to
approve the settlement agreements. The Second Circuit affirmed
dismissal of the complaint, agreeing that the Sherman Act had
been impliedly repealed with regard to the listing and trading of
equity options. See In re Stock Exchs. Options Trading
Antitrust Litig., 317 F.3d 134, 148 (2d Cir. 2003). However, the
Second Circuit reversed this Court's determination that it lacked
subject matter jurisdiction to approve the settlements, holding:

Since the parties sought approval of their settlement
agreements before the court had adjudicated the
immunity defense [conveyed by implied repeal of the
antitrust laws], and since such a defense may be
waived, the court had jurisdiction to entertain and
rule on the motions for approval of the proposed
settlements. Having entered a final judgment without
dealing with those pending motions, the court should
have entertained them in conjunction with the
subsequent motion to alter or amend the final
judgment, and it should have granted the latter
motion if it approved the proposed settlements.

Id. at 153. The Second Circuit also noted that LETCO, one of
the Market-Maker Defendants, had raised the argument that the
settlement agreement to which it was a party became void by its
own terms upon this Court's denial of the motion to preliminarily
approve it in April 2001. Id. The court stated, "We express no
view as to the correctness of LETCO's contention. . . . That
question may be considered by the district court on remand."
Id.

Plaintiffs once against seek preliminary approval of the
settlement agreement with PCX ("PCX Settlement"); the agreement
with PHLX ("PHLX Settlement"); and the agreement with AMEX, CBOE,
and the Market-Maker Defendants, which Plaintiffs refer to as the
"Global Settlement." Along with the agreements, Plaintiffs seek
preliminary approval of a Proposed Plan of Distribution
("Distribution Plan") for the settlement payments ("Settlement
Fund"), a Notice of Pendency of the class action ("Notice"), a
Proof of Claim and Release form ("Proof of Claim"), a Summary
Notice of the class action ("Summary Notice"), and an Order
Preliminarily Approving the Proposed Settlement
("Preliminary-Approval Order"). Multiple defendants and one
third-party intervenor have raised various objections to approval
of the agreements and the other documents.

B. Objections to the Global Settlement

Some defendants and a third-party intervenor raise objections
to approval of the Global Settlement. Market-Maker Defendants
LETCO, Omega Options LLC ("Omega"), Cranmer & Cranmer, Inc.
("Cranmer"), Kalb Voorhis & Co. ("Kalb"), and AGS Specialist
Partners ("AGS"), and third-party Susquehanna International
Group, LLP ("Susquehanna") (collectively, "Objecting Market
Makers") raise the argument that LETCO made on appeal.*fn2
They maintain that the Global Settlement was rendered void upon
entry of this Court's April 2001 decision denying the motions for
preliminary approval under a provision of the Global Settlement
that states, "In the event . . . the Court denies the motion for preliminary or final approval of this
Settlement Agreement or any material part of it . . . the
settlement provided for by this Settlement Agreement shall be
rescinded and be null and void. . . ." (Global Settlement ¶ 22,
Ex. C to Compendium of Settlement Documents Supp. Pls.' Mot.
Preliminary Approval of the Proposed Class Action Settlement
("Settlement Compendium").) The Objecting Market Makers therefore
oppose preliminary approval of the Global Settlement and
cross-move for an order that the payments they already made
should be returned to them with interest under paragraph 23 of
the Global Agreement: "In the event the settlement is terminated,
rescinded, or is null and void for any reason, within five (5)
business days of such an event the Settlement Fund . . .,
including interest, shall be dispersed to such Settling Parties
in proportion to their contributions. . . ." (Id. ¶ 23.)

CBOE maintains that the Global Settlement cannot be approved
because Plaintiffs breached the agreement when Plaintiffs' lead
counsel commenced a suit in the Northern District of Illinois,
Last Atlantis LLC v. Chicago Bd. Options Exch., Inc., No. 04 C
0397, asserting claims that purportedly fall within the scope of
a release and covenant not to sue in the Global Agreement (see
Global Agreement ¶ 25). CBOE contends that Plaintiffs have
asserted that the release and covenant not to sue would be
impermissible under National Super Spuds, Inc. v. New York
Mercantile Exchange, Inc., 660 F.2d 9 (2d Cir. 1981), if given
its plain meaning and therefore cannot be read as broadly as its
terms. CBOE disagrees with Plaintiffs' purported interpretation
of the release and covenant not to sue.*fn3 It is CBOE's
position that the provision protects it from any potential claims
that have any connection to the allegations in Plaintiffs'
consolidated complaint. CBOE essentially asks the Court for a ruling on the scope of the release and
covenant, and, if its meaning brings it into conflict with the
Second Circuit's decision in Super Spuds, then requests that
the Court deny preliminary approval of the settlement agreement.
CBOE also argues that when Plaintiffs' lead counsel filed the
Lost Atlantis suit in the Northern District of Illinois,
Plaintiffs breached their covenant of good faith and fair dealing
that is implied in the Global Settlement and a contractual
provision that requires Plaintiffs to use their best efforts to
effectuate the settlement.

In addition, CBOE objects to (1) a provision of the Notice that
would require it to post copies of the Summary Notice on its
website with a link to a website created and maintained by
Plaintiffs; (2) a provision of the Preliminary-Approval Order
also requiring it to post a link on its website to Plaintiffs'
website and a statement announcing the settlement; and (3) a
provision of the Distribution Plan providing for a "Supplemental
Notice Program" if a significant number of class members do not
submit claim forms, and a method of distribution of excess funds
after such supplemental notice. Finally, CBOE does not join the
Objecting Market Makers' argument that the Global Settlement is
void, but, like AMEX, contends that if the Court accepts this
argument, the agreement should be rendered void as to CBOE as
well.

AMEX does not oppose preliminary approval of the Global
Settlement, but states that should the Court determine the scope
of the release and covenant not to sue is less extensive than the
plain language provides, then AMEX would object to approval. AMEX
also submits that if the Court sustains the objection of the
Objecting Market Makers that the Global Agreement was rescinded
upon this Court's denial of preliminary approval in April 2001,
then that ruling should render the agreement void as to all
settling defendants and not just the Objecting Market Makers. C. Objections to the PCX Settlement

PCX argues that it has already paid all of the settlement funds
that the PCX Settlement requires, and seeks an order from the
Court to that effect. The PCX Settlement contains a provision
that Plaintiffs and PCX agree entitles PCX to a 50% reduction in
the amount that PCX must pay because the Court granted the
motions for summary judgment. PCX has already made one payment
under the agreement, of which Plaintiffs returned a portion. PCX
argues that Plaintiffs should be ordered to recalculate the
amount to be returned, as the amount returned was not a full 50%
of the payment made. PCX also argues that the agreement does not
require it to pay anything further. PCX also objects to the
Notice and Preliminary-Approval Order provisions that would
require it to post a copy of the Summary Notice and a link on its
website to Plaintiffs' website, and to the provision of the
Distribution Plan addressing excess funds in the Settlement Fund
and the Supplemental Notice Program.

D. Objections to the PHLX Settlement

PHLX raises a number of objections to preliminary approval of
its agreement with Plaintiffs. First, it joins in CBOE's request
that the Court define the scope of the release and covenant not
to sue in the Global Agreement, which is substantially the same
as to the release and covenant in the PHLX Settlement. Second,
PHLX seeks an equitable recoupment or set off regarding the
payment it made under the PHLX Settlement based on Plaintiffs'
failure to secure releases from the other settling defendants for
any claims the other settling defendants might have against PHLX
relating to the subject matter of these actions. Third, PHLX
objects to the Notice and Preliminary-Approval Order because they
do not require opting-out class members to provide sufficient
information about themselves and their claims; PHLX seeks the
addition of language requiring information and language in the Preliminary-Approval Order that requires
Plaintiffs to comply with their obligations to the settling
defendants to provide information about the opting-out class
members. Fourth, PHLX maintains that it should get the benefit of
any ruling that PCX need not make any additional payment under
the PCX Settlement. Fifth, it requests additional language in the
Proof of Claim and Release and the Notice to explain the scope of
the release contained in the PHLX Settlement. Finally, PHLX
claims that, if the Global Settlement is null and void, so too is
the PHLX Settlement because the latter contains an identical
clause to paragraph 22 of the Global Settlement.

II. DISCUSSION

A. Standard for Preliminary Approval of a ...

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